National · 5 min read
Directors and officers insurance is the coverage that protects the people running your company — founders, executives, and board members — when they're personally sued over decisions they made in those roles. For venture-backed startups, it's also the coverage your investors will almost certainly require the moment they take a board seat. This guide explains what D&O insurance is, what it covers, why financings trigger it, and how the policy is structured — in plain language, for founders who'd rather be building product than reading insurance forms.
When someone sues your company, the company's assets are at risk. When someone sues your directors and officers personally — alleging they breached fiduciary duties, misled investors, or mismanaged the business — their personal assets are at risk: homes, savings, vested equity. D&O insurance responds to exactly those claims. It pays defense costs, settlements, and judgments arising from alleged "wrongful acts" committed by directors and officers in their corporate capacity. Two points founders often miss: Defense costs are the real exposure. Even a meritless claim can cost hundreds of thousands of dollars to defend, and D&O policies typically pay defense costs as they're incurred. Your indemnification obligations need funding. Your charter and bylaws almost certainly promise to indemnify directors and officers. D&O insurance is how a cash-constrained startup actually honors that promise without draining runway.
Nearly every priced-round term sheet includes a D&O requirement, and it isn't bureaucratic boilerplate. Your lead investor's partner is about to join your board, taking on personal liability for the company's governance. Their fund won't let them do that without insurance behind the company's indemnification promise. Common mechanics: The stock purchase agreement or side letter requires D&O coverage at a stated limit (often $1M–$3M at Series A) at or shortly after closing The obligation continues for as long as the investor holds a board seat Independent directors and senior executive hires increasingly make the same ask before joining Practically, that means starting the quote process when you sign the term sheet. Our guide to getting D&O insurance quotes walks through what carriers need and how fast it moves — for early-stage companies, usually days, not weeks.